Executory clause: Overview, definition, and example
What is an executory clause?
An executory clause is a provision in a contract that outlines actions or duties that are yet to be performed by one or more parties. These are promises or obligations that are set to be carried out in the future, meaning the contract will not be fully performed until these actions are completed. Executory clauses are common in various types of contracts, such as leases, sales agreements, or employment contracts, where certain obligations are to be fulfilled at a later time.
For example, a sales contract might include an executory clause that requires the seller to deliver goods to the buyer within 30 days after the agreement is signed. Until that delivery occurs, the obligations under the contract are considered executory.
Why is an executory clause important?
An executory clause is important because it provides clarity on what each party is expected to do in the future, and establishes a timeline or conditions for the completion of these actions. It helps ensure that all parties are aware of their obligations and the schedule for performance. The clause also ensures that if one party fails to fulfill their duties, the other party has clear grounds for legal action, including potential claims for breach of contract.
For businesses and individuals, executory clauses provide a roadmap for fulfilling contractual obligations, reducing the likelihood of misunderstandings or disputes. For legal purposes, these clauses help to define what remains to be done before a contract is considered fully executed and binding.
Understanding executory clauses through an example
Imagine a rental agreement between a landlord and a tenant. The contract includes an executory clause where the landlord agrees to repair the heating system in the property within the first 30 days of the lease. Until the landlord performs this repair, the obligation remains executory.
In another example, a construction contract might specify that the contractor will begin work on a building project within 10 days of receiving the signed contract and deposit from the client. The clause specifying the timeline for work to commence is an executory clause, as the project will only be completed once the work is performed.
An example of an executory clause
Here’s how an executory clause might appear in a contract:
“The Seller agrees to deliver the goods specified in this Agreement to the Buyer within 60 days of the execution of this Agreement. The Buyer agrees to pay the purchase price upon delivery, which shall be considered the completion of the contract.”
Conclusion
An executory clause in a contract outlines obligations that are to be fulfilled in the future, making it clear what each party is expected to do to complete the agreement. These clauses are crucial for ensuring that all parties know their responsibilities, the timing of actions, and the conditions under which the contract will be fully performed. By setting out future duties, executory clauses help avoid confusion, reduce risks, and provide a clear framework for resolving disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.